A Review of the Nigerian Energy Industry

Nigeria: Hike in electricity tariffs looms

Electric-meters*$3.30 gas price takes effect in December

21 November 2014, Abuja —
The new domestic price of $3.30 approved for gas supply to power plants by the Nigerian Electricity Regulatory Commission (NERC) and changes in other key factors that are often considered by NERC when setting electricity tariff may lead to another increase in rates paid by consumers for electricity services across the country.

It was gathered on Thursday in Abuja that while the new gas price has been scheduled to commence in December 2014 by the Ministry of Petroleum Resources and NERC; the development, in addition to changes in exchange rate, inflation rate and generation capacity which are often considered by NERC in setting the tariff within the Multi Year Tariff Order (MYTO) framework may force adjustments in electricity rates in the country.

NERC had at a public consultation on its minor review of the MYTO-2 in Abuja disclosed that the ministry of petroleum resources in collaboration with it has agreed to a gas price of $2.50/million British thermal unit (mbtu) and transportation cost of $.80 effective from December 2014.

A presentation that was made by Roland Achor of NERC’s Tariff and Rates Division at the meeting, showed that while the current inflation rate in the country was put at 8.3 per cent, the commission had in MYTO-2 projected a 13 per cent inflationary rate, the rate in previous review in June was however 7.8 per cent, showing a slight difference of 0.5 percent.

Similarly, the commission benchmarked $1 to N178 as exchange rate but the rates obtained by it from the Central Bank of Nigeria (CBN) as at September when the review was done showed $1 to N156.

The new domestic gas price which will now be factored into the tariff showed a $1 difference from NERC’s earlier $2.30 assumption while the average generation capacity in the review was pegged at 3,657 megawatts (MW), about 1,905mw different from its 5,556mw projection and 251mw slight increase over its last June benchmark of about 3,406mw.

NERC’s Commissioner for Market Competitions and Rates, Mr. Eyo Ekpo, however, said the commission would aggregate the review results and after inputs from the stakeholders, announce the new tariff structure in December in anticipation of its commencement in January.

In expression of their fears, electricity consumers and power firms at the consultation said that the new price and other factors, notwithstanding may trigger a significant increase in the new MYTO-2 review.

They opined that there was no gas price increase in June 2014 when the commission reviewed the tariff and had slightly increased tariff.

With this $1.00 increase in gas price, they noted that there is the possibility of a significant increase in the tariff far from what consumers may expect.

The Vice-Chairman of NERC, Mohammed Bello, said in his remarks that consumers complain of paying too much for electricity while they are yet to see improvements. He however said: “But I believe that this is the process by which power supply will improve.”

It will be recalled that NERC announced the last tariff review in June 2014 when energy cost increased from N1 to N5 for various distribution companies. The Chairman of NERC, Dr. Sam Amadi, had explained then that the review considered the prevailing inflation rate, exchange rate, gas price and available generation capacity.
*Chineme Okafor – Thisday

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